Question

How does a corridor deductible work?

Answer
By Jacques Wong | Last updated: March 16, 2021

Most people who have health or auto insurance are familiar with the idea of a deductible. But not everyone realizes there are different kinds of deductible (see An Overview of Insurance Deductibles to learn more).

In general, a deductible is the amount you have to pay out of pocket before your insurance company will pay for your claim. Its purpose is to lower the cost of insurance by reducing the number of claims an insured can make. This naturally reduces the amount of money insurance companies pay out in claims and decreases administration costs related to processing and investigating claims.

For example, if the deductible on your car insurance is $500 and you get into a small fender bender that causes $200 in damage to your car, you wouldn't bother filing a claim with your insurance company. It wouldn't make any financial sense to pay a $500 deductible to get a $200 claim covered. So, the higher your deductible, the fewer claims you will make and the cheaper your insurance premiums will be.

"Corridor deductible" is a much less common term because it typically only applies to health insurance policies. In recent years, however, it has migrated to property and casualty insurance, since underwriters are looking for more creative ways to profitably insure large accounts. As a result, this term is becoming more and more prevalent.

Health insurance policies typically have two levels of deductibles: a regular, "traditional" deductible and a corridor deductible. To access the first level of coverage on a health insurance policy, the insured pays a regular deductible. But once the full basic coverage limits stipulated in the policy have been used up, the insured then has to pay a second deductible (the corridor deductible) before they can get further coverage for major medical expenses. This corridor deductible is usually much larger than your standard deductible.

It's worth noting that after paying the corridor deductible and accessing this second level of coverage, the cost of any further medical expenses are not covered in full. Instead, they are typically shared between the insured and the insurer. For example, an insurer might only pay for 80% of any further expenses while the insured is responsible for paying the remaining 20%.

In short, the corridor deductible is a second deductible that must be paid before additional coverage can be unlocked. It essentially functions as a corridor separating the primary coverage of the policy from the further coverage that can be accessed once the primary coverage is exhausted.

Share this Q&A

  • Facebook
  • LinkedIn
  • Twitter

Tags

Insurance Contract Personal Lines

Written by Jacques Wong

Profile Picture of Jacques Wong

Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.

In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.

More Q&As from our experts

Related Articles

Term of the Day

Multiple Peril Crop Insurance

Multiple peril crop insurance (MPCI) is a type of insurance that provides coverage to farmers for a variety of potential...
Read Full Term

Subscribe To the Insuranceopedia Newsletter!

Do you want to stay on top of New Terms, New Products, Free Software, and Specials? Join one of our email newsletters. It's fast and easy. You will be among the first to know about hot new insurance related articles, goodies and great deals - it will only take seconds!

Resources
Go back to top